China is one of the largest business hubs, attracting foreign entities and investors from across the world. Businesses that wish to enter the Chinese markets find it easier to set up their business in the country. Also, the Chinese government has introduced numerous business reforms to attract more businesses. These reforms are directed towards ensuring ease of doing business in the country. In this article, we talk about the easiest methods for opening a business in China.
Ease of Doing Business in China
There have been several global concerns and hesitation over the Chinese economy recently. However, the country has been able to top the charts of being one of Asia’s most successful economies. With a blend of manufacturing, technology, and a flourishing market, China also makes up for a lucrative option for foreign entities who wish to start a business in China.
The country has ranked amongst the top countries in terms of the ease of doing business. The global ranking was assessed on the basis of business regulations and the economy’s performance. China ranked 31st out of 190 countries worldwide, with a high score of 77.9 out of 100.
The study has also highlighted that China has made improvements across several regulatory areas. These include starting a business, construction permits, electricity facilities; protection of minority investors; tax compliance; cross-border trading; contract enforcement, and insolvency resolution.
Martin Raiser, World Bank Country Director for China, also highlighted that the country had undertaken significant reformative endeavors. These efforts are directed towards improving the country’s business climate for small and medium-sized businesses. These reforms also ensure that the interest of small and foreign investors is protected.
Government Reforms for Opening a Business in China
The Chinese government has introduced numerous reforms to make opening a business in China easier for small entities. These reforms include:
- A simpler process to obtain building permits for low-risk construction projects.
- Reduced time to obtain water, drainage, and electricity connections.
- More transparency regarding electricity tariff changes.
- More protection to minority investors through liability on controlling shareholders for any unfair transactions, controlled structure, and clearer ownership.
- Preferential corporate income tax rate for small entities.
- Electronic filing and payment methods for easier compliance.
- Easier trade through advance cargo declaration, upgraded ports, better customs administration, and transparent fee structure.
- Easier contract enforcement through limited adjournments.
- Straight-forward insolvency resolution and increased involvement of creditors.
In June 2020, the Chinese government also announced that the country will be working to further reduce the time needed for opening a business in China. The country will also make necessary changes for better regulation of charges levied on businesses from industry authorities and associations to reduce their corporate expenses.
China will also introduce reforms to streamline the process of starting a business in China. This would include launching a unified digital portal that would allow access to registration services. Registration applications would be filed online through one combined form and one-time documentation.
The country is also targeting electronic business licensing, digital tax filing, and opening of bank accounts through e-signatures. China will also make changes to the registration and licensing processes to reduce the overall time to less than four days. Changes will be made to ensure that no unauthorized charges are levied on businesses by any industry bodies and associations.
Methods for Opening a Business in China
There are numerous ways to set up a business in China, each with unique traits, benefits, and drawbacks. The most common ways to start a business in China are:
Setting up a Representative Office (RO)
A Representative Office in China can be opened by a business that wants to operate in the country with limited activities. A representative office can only undertake certain specific tasks on behalf of its parent company. In other words, it cannot undertake any manufacturing activities, import or export any products, or accept payment from the Chinese clients. Starting a representative office in China is most suited for businesses that wish to operate a marketing or customer support unit in the country.
Opting for PEO Services
A company may also opt for the services of a Professional Employment Organization (PEO). Associating with an international PEO eliminates the need to set up a legal entity altogether. A PEO can handle functions such as HR management, payroll management, compliance, contract drafting and vetting, etc. on behalf of the clients. They also help companies with the research about a foreign market, market demands, and entry norms applicable. With a PEO, a company gets access to a team of local experts, who can help it to set up its operations in China.
Starting a Joint venture (JV) in China
Another way of opening a business in China is by entering into a Joint Venture with a Chinese entity to share the profits, losses, and management. Partnering with a local entity via a JV gives the foreign company the benefits of having an established distribution channel. While establishing a joint venture in China is one of the easiest ways of entering the Chinese market, it is not necessarily the most recommended because of the kind of risks involved for foreign investors who lack due protection and safeguards against the Chinese partner, especially when it comes to conflicts in cases of intellectual property rights and know-how.
Establishing a Wholly Foreign-Owned Enterprise in China
Setting up a Wholly Foreign-Owned Enterprise (WFOE) is another option for opening a business in China. A WFOE or WOFE allows foreign investors to own 100 percent of a Chinese company. The business also enjoys the same rights and benefits as a Chinese-owned enterprise. A WFOE in China can be set up as a Limited Liability Company or LLC.
Starting a Wholly Foreign-Owned Enterprise (WFOE) in China also comes with the benefits of unrestricted operations, protection and ownership of Intellectual Property Rights. The business has more independence and business expansion opportunities.
Another benefit of opening a WFOE in China is that the Chinese government has removed the requirements of having starting capital and registered capital for WFOE incorporation. Now, foreign investors do not require upfront capital to start a Wholly Foreign-Owned Enterprise except for the costs associated with registration.
Further, the WFOE registration requirements can be challenging to manage for foreign entities. Here, New Horizons Global Partners can support businesses for their smooth, affordable, and time-efficient business registration in China.
The team of business experts at NHGP can handle all the documentation and licensing requirements on behalf of foreign investors. NHGP can also support the HR needs of foreign enterprises in China by acting as their employer of record.
For more information about ease of doing business and opening a business in China, including the complete list of registration requirements, procedures, and documents, contact NHGP today.